Project on Indian Banking Sector Reforms

7/28/2019 Project on Indian Banking Sector Reforms

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Banking sector reforms

1. INTRODUCTION

As the real sector reforms began in 1992, the need was felt to restructure the Indian banking

industry. The reform measures necessitated the deregulation of the financial sector, particularly

the banking sector. The initiation of the financial sector reforms brought about a paradigm shift

in the banking industry. In 1991, the RBI had proposed to form the committee chaired by M.

Narasimham, former RBI Governor in order to review the Financial System viz. aspects relating

to the Structure, Organisations and Functioning of the financial system. The Narasimham

Committee report, submitted to the then finance minister, Manmohan Singh, on the banking

sector reforms highlighted the weaknesses in the Indian banking system and suggested reform

measures based on the Basle norms. The guidelines that were issued subsequently laid the

foundation for the reformation of Indian banking sector.

The main recommendations of the Committee were: -

Reduction of Statutory Liquidity Ratio (SLR) to 25 per cent over a period of five years

Progressive reduction in Cash Reserve Ratio (CRR)

Deregulation of interest rates so as to reflect emerging market conditions

Adoption of uniform accounting practices in regard to income recognition, asset classification

and provisioning against bad and doubtful debts

Imparting transparency to bank balance sheets and making more disclosures

Setting up of special tribunals to speed up the process of recovery of loans


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Setting up of Asset Reconstruction Funds (ARFs) to take over from banks a portion of their bad

and doubtful advances at a discount

Restructuring of the banking system, so as to have 3 or 4 large banks,which could become

international in character, 8 to 10 national banks and local banks confined to specific regions.

Rural banks, including RRBs, confined to rural areas

Abolition of branch licensing

Liberalizing the policy with regard to allowing foreign banks to open offices in India

Rationalization of foreign operations of Indian banks

Giving freedom to individual banks to recruit officers

Inspection by supervisory authorities based essentially on the internal audit and inspection

reports.

A separate authority for supervision of banks and financial institutions which would be a semi-

autonomous body under RBI

Revised procedure for selection of Chief Executives and Directors of Boards of public sector

banks.

Speedy liberalization of capital market


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2. HISTORY OF BANKING

Before we look into the banking sector reforms process, we must have a proper perspective of

what is the history of our banking system in India and also understand the rationale of why

reform is necessary and what reforms are essential. Like in many other aspects, India had a long

tradition of banking. Evidence regarding the existence of money-lending operations in India is

found in the literature of the Vedic times, i.e.,2000 to 1400 B.C. These literatures supply

evidence of the existence of bankers. From the laws of menu, it appears that money-lending and

allied problems had assumed considerable importance in ancient India.

What were the interest rates? A common base number was 15 per centannum what the banker-

economist Dr. Thingalaya calls Hindu rate of interest. Incidentally, this is close to current Prime

Lending Rate (PLR) of many banks. However, Chanakya gives a different approach. The interest

works out for 15 per cent annum for general advances. The traders are charged a rate of 60 per

cent per annum. Where the merchandise has to pass through forests, the traders have to pay 120

per cent while those engaged inthe export-import business handling sea-borne cargo have to pay

240 per cent per annum. Chanakyas interest rate structure is risk-weighted; the rateof interest

increases with the risk involved in the borrowers business. Again, it is not everyone who could

take up banking business. The Dharmashastra laid down the rates according to the castes of the

borrowers, and the eligibility of men belonging to Vaishya caste alone could take up the money-

lending profession. In other words, in ancient times, your caste givesyou license to banking; not

RBI!!


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CHAPTER III

1. Indias Pre-Reforms Period.

Since 1991, India has been engaged in banking sector reforms aimed at increasing the

profitability and efficiency of the then 27 public-sector banks that controlled about 90 per cent

of all deposits, assets and credit. The reforms were initiated in the middle of a current account

crisis that occurred in early 1991. The crisis was caused by poor macroeconomic performance,

characterized by a public deficit of 10 per cent of GDP, a current account deficit of 3 per cent of

GDP, an inflation rate of 10 per cent, and growing domestic and foreign debt, and was triggered

by a temporary oil price boom following the Iraqi invasion of Kuwait in 1990.

Prior to the reforms, Indias financial sector had long been characterized as highly regulated and

financially repressed. The prevalence of reserver equirements, interest rate controls, and

allocation of financial resources to priority sectors increased the degree of financial repression

and adversely affected the countrys financial resource mobilization and allocation. After

Independence in 1947, the government took the view that loans extended by colonial banks were

biased toward working capital for trade and large firms (Joshi and Little 1996). Moreover, it

was perceived that banks should be utilized to assist Indias planned development strategy by

mobilizing financial resources to strategically important sectors.

Reflecting these views, all large private banks were nationalized in two stages: the first in 1969

and the second in 1980. Subsequently, quantitative loan targets were imposed on these banks to

expand their networks in rural areas and they were directed to extend credit to prioritysectors.

These nationalized banks were then increasingly used to finance


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fiscal deficits. Although non-nationalized private banks and foreign banks were allowed to co-

exist with public-sector banks at that time, their activities were highly restricted through entry

regulations and strict branch licensing policies. Thus, their activities remained negligible.

In the period 1969-1991, the number of banks increased slightly, butsavings were successfully

mobilized in part because relatively lowinflation kept negative real interest rates at a mild level

and in part because the number of branches were encouraged to expand rapidly.

Never the less, many banks remained unprofitable, inefficient, andunsound owing to their poor

lending strategy and lack of internal risk management under government ownership. Joshi and

Little (1996) havereported that the average return on assets in the second half of the 1980swas

only about 0.15 per cent, while capital and reserves averaged about1.5 per cent of assets. Given

that global accounting standards were notapplied, even these indicators are likely to have

exaggerated the bankstrue performance. Further, in 1992/93, non-performing assets (NPAs)

of 27 public-sector banks amounted to 24 per cent of total credit, only 15 public-sector banks

achieved a net profit, and half of the public-sector banks faced negative net worth.


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The major factors that contributed to deteriorating bank performance included:-

(a) Too stringent regulatory requirements (i.e., a cash reserve requirement[CRR] and statutory

liquidity requirement [SLR] that required banks tohold a certain amount of government and

eligible securities);

(b) Low interest rates charged on government bonds (as compared withthose on commercial

advances);

(c) Directed and concessional lending;

(d) Administered interest rates;

(e) Lack of competition.

These factors not only reduced incentives to operate properly,but also undermined regulators

incentives to prevent banks from taking risks via incentive-compatible prudential regulations and

protect depositors with a well-designed deposit insurance system. While government

involvement in the financial sector can be justified at the initial stage of economic development,

the prolonged presence of excessively large public-sector banks often results in inefficient

resource allocation and concentration of power in a few banks. Further, once entry deregulation

takes place, it will put newly established private banks as well as foreign banks in an extremely

disadvantageous position


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2. Role Of RBI In Reform.

First, the committee recommended that the RBI withdraw from the 91-day treasury bills market

and that interbank call money and term money markets be restricted to banks and primary

dealers. Second, the Committee proposed a segregation of the roles of RBI as a regulator of

banks and owner of bank. It observed that "The Reserve Bank as a regulator of the monetary

system should not be the owner of a bank in view of a possible conflict of interest". As such, it

highlighted that RBI's role of effective supervision was not adequate and wanted it to divest its

holdings in banks and financial institutions.

Pursuant to the recommendations, the RBI introduced a Liquidity Adjustment Facility (LAF)

operated through repo and reverse repos in order to set a corridor for money market interest

rates. To begin with, in April 1999, an Interim Liquidity Adjustment Facility (ILAF) was

introduced pending further upgradation in technology and legal/procedural changes to facilitate

electronic transfer. As for the second recommendation, the RBI decided to transfer its respective

shareholdings of public banks like State Bank of India (SBI), National Housing Bank (NHB) and

National Bank for Agriculture and Rural Development (NABARD) to GOI. Subsequently, in

2007-08, GOI decided to acquire entire stake of RBI in SBI, NHB and NABARD. Of these, the

terms of sale for SBI were finalised in 2007-08 itself.


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3. Impotant Reforms Of The Banking Sector

Indian banking sector has undergone major changes and reforms during economic reforms.

Though it was a part of overall economic reforms, it has changed the very functioning of Indian

banks. This reform have not only influenced the productivity and efficiency of many of the

Indian Banks, but has left everlasting footprints on the working of the banking sector in India.

Let us study some important reforms of the banking sector:

REDUCED CRR & SLR :

The South East Asian countries introduced banking reforms wherein bankCRR and SLR

was reduced, this increased the lending capacity of banks. The markets fell precipitously

because banks and corporates did notaccurately measure the risk spread that should have

been reflected intheir lending activities. Nor did they manage such risks or provide forthem

in their balance sheets. And followed the South East Asian Crisis. The monetary policy

perspective essentially looks at SLR and CRRrequirements (especially CRR) in the light of

several other roles they playin the economy. The CRR is considered an effective instrument

formonetary regulation and inflation control. The SLR is used to imposefinancial discipline

on the banks, provide protection to deposit-holders,allocate bank credit between the

government and the private sectors, andalso help in monetary regulation. However bankers

strongly feel thatthese along with high non-performing assets (on which banks do not


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earnany return) 10 percent CRR and 25 percent SLR (most banks have SLRinvestments way

above the stipulation) are affecting banks' bottomlines.With an effective return of a mere 2.8

per cent, CRR is a major drag o nbanks' profitability

The Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are gradually reduced

during the economic reforms period in India. By Law in India the CRR remains between 3-15%

of the Net Demand and Time Liabilities. It is reduced from the earlier high level of 15% plus

incremental CRR of 10% to current 4% level. Similarly, the SLR Is also reduced from early

38.5% to current minimum of 25% level. This has left more loanable funds with commercial

banks, solving the liquidity problem.


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DEREGULATION OF INTEREST RATES:

During the economics reforms period, interest rates of commercial banks were deregulated.

Banks now enjoy freedom of fixing the lower and upper limit of interest on deposits. Entry

deregulation was accompanied by progressive deregulation of interest rates on deposits and

advances. From October 1994,interest rates were deregulated in a phased manner and by October

1997, banks were allowed to set interest rates on all term deposits of maturity of more than 30

days and on all advances exceeding Rs 200,000. Interest rate slabs are reduced from Rs.20 Lakhs

to just Rs. 2 Lakhs. Interest rates on the bank loans above Rs.2 lakhs are full decontrolled. These

measures have resulted in more freedom to commercial banks in interest rate regime.

FIXING PREDENTIAL NORMS:In April 1992, the RBI issued detailed guidelines on a phased introduction of prudential norms to

ensure safety and soundness of banks and impart greater transparency and accounting operations.

The main objective of prudentialnorms is the strengthening financial stability of banks.

In order to induce professionalism in its operations, the RBI fixed prudential norms for

commercial banks. It includes recognition of income sources. Classification of assets, provisions

for bad debts, maintaining international standards in accounting practices, etc. It helped banks in

reducing and restructuring Non-performing assets (NPAs).


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INTRODUCTION OF CRAR:Capital to Risk Weighted Asset Ratio (CRAR) was introduced in 1992. Capital adequacy ratio

(CAR), also called Capital to Risk (Weighted) Assets Ratio (CRAR), is a ratio of a bank's capital

to its risk. Capital adequacy ratio is the ratio which determines the bank's capacity to meet the

time liabilities and other risks such as credit risk, operational risk etc. It resulted in an

improvement in the capital position of commercial banks, all most all the banks in India has

reached the Capital Adequacy Ratio (CAR) above the statutory level of 9%.

ASSET LIABILITY MANAGEMENT (ALM) SYSTEM -The Reserve Bank advised banks in February 1999 to put in place an ALM system, effective

April 1, 1999 and set up internal asset liability management committees (ALCOs) at the top

management level to oversee its implementation. Banks were expected to cover at least 60 per

cent of their liabilities and assets in the interim and 100 per cent of their business by April 1,

2000. The Reserve Bank also released ALM system guidelines in January 2000 for all-India

term-lending and refinancing institutions, effective April l, 2000. As per the guidelines, banks

and such institutions were required to prepare statements on liquidity gaps and interest rate

sensitivity at specified periodic intervals.


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Implementation of asset liability management (ALM) systemRBI has issued guidelines regarding ALM by which the banks have toensure coverage of at least

60% of their assets and liabilities by Apr 99.This will provide information on banks position as

to whether the bank islong or short. The banks are expected to cover fully their assets

andliabilities by April 2000.

.ALM framework rests on three pillars

ALM Organisation:The ALCO consisting of the banks senior management including CEOshould be responsible for

adhering to the limits set by the board as well asfor deciding the business strategy of the bank in

line with the banksbudget and decided risk management objectives. ALCO is a decision-making

unit responsible for balance sheet planning from a risk returnperspective including strategic

management of interest and liquidity

risk.Consider the procedure for sanctioning a loan. The borrower whoapproaches the bank, is

appraised by the credit department on various parameters like industry prospects, operational

efficiency, financialefficiency, management evaluation and others which influence theworking

of the client company. On the basis of this appraisal the borrower is charged certain rate of

interest to cover the credit risk. For example, aclient with credit appraisal AAA will be charged

PLR. While somebody with BBB rating will be charged PLR + 2.5 %, say. Naturally, there will

becertain cut-off for credit appraisal, below which the bank will not lend e.g.Bank will not like to

lend to D rated client even at a higher rate of interest. The guidelines for the loan sanctioning

procedure are decided in the ALCOmeetings with targets set and goals established


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ALM Information SystemALM Information System for the collection of information accurately,adequately and

expeditiously. Information is the key to the ALM process. Agood information system gives the

bank management a complete pictureof the bank's balance sheet.

ALM ProcessThe basic ALM process involves identification, measurement andmanagement of risk parameter

s. The RBI in its guidelines has askedIndian banks to use traditional techniques like Gap

Analysis for monitoringinterest rate and liquidity risk. However RBI is expecting Indian banks

tomove towards sophisticated techniques like Duration, Simulation, VaR inthe future


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RISK MANAGEMENT GUIDELINES -The Reserve Bank issued detailed guidelines for risk management systems in banks in October

1999, encompassing credit, market andoperational risks. Banks would put in place loan policies,

approved by their boards of directors, covering the methodologies for measurement, monitoring

and control of credit risk. The guidelines also require banks to evaluate their portfolios on an on-

going basis, rather than at a time close to the balance sheet date. As regards off-balance sheet

exposures, the current and potential credit exposures may be measured on a daily basis. Banks

were also asked to fix a definite time-frame for moving over to the Value-at-Risk (VaR) and

duration approaches for the measurement of interest rate risk. The banks were also advised to

evolve detailed policy and operative framework for operational risk management. These

guidelines together with ALM guidelines would serve as a benchmark for banks which are yet to

establish an integrated risk management system.

OPERATION AUTONOMYDuring the reforms period commercial banks enjoyed the operational freedom. If a bank satisfies

the CAR then it gets freedom in opening new branches, upgrading the extension counters,

closing down existing branches and they get liberal lending norms.


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DISCLOSURE NORMSBanks should disclose in balance sheets maturity pattern of advances, deposits, investments and

borrowings. Apart from this, banks are also required to give details of their exposure to foreign

currency assets and liabilities and movement of bad loans. These disclosures were to be made for

the year ending March 2000.

As a move towards greater transparency, banks were directed to disclose the following

additional information in the Notes to accounts in the balance sheets from the accounting year

ended March 31, 2000:

(i) Maturity pattern of loans and advances, investment securities, deposits and borrowings,

(ii) Foreign currency assets and liabilities,

(iii) Movements in NPAs and

(iv) Lending to sensitive sectors as defined by the Reserve Bank from time to time.

RBI norms for consolidated PSU bank accountsThe Reserve Bank of India (RBI) has moved to get public sector banks to consolidate their

accounts with those of their subsidiaries and other outfits where they hold substantial stakes.

Towards this end, RBI has set up a working group recently under its Department of Banking

Operations and Development to come out with necessary guidelines on consolidated accounts for

banks. The move is aimed at providing the investor with a better insight into viewing a banks

performance in totality, including all its branches and subsidiaries, and not as isolated entities.


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According to a banker, earlier subsidiaries were floated as external independent entities wherein

the accounting details were not incorporated in the parent banks balance sheet, but at the same

time it was assumed that the problems will be dealt with by the parent.

This will be a path-breaking change to the existing norms wherein each bank conducts its

accounts without taking into consideration the disclosures of its subsidiaries and other divisions

for disclosure. As per the proposed new policy guidelines, the banks will be required to

consolidate their accounts including all its subsidiaries and other holding companies for better

transparency.

Result:

This will require the banks to have a stricter monitoring system of not only their own bank, but

also the other subsidiaries in other sectors like mutual funds, merchant banking, housing finance

and others. This is all the more important in the context of the recent announcements made by

some major public sector banks where they have said they would hive off or close down some of

their under performing subsidiaries.

The I nvestors AdvantageGetting all these accounts consolidated with that of the parent bank will provide the investor a

better understanding of the banks performances while deciding on their exposures. More so,

since a number of public sector banks are now listed entities whose stocks are traded on the stock

exchanges. Some public sector banks are even preparing their accounts in line with US GAAP

norms in anticipation of a US listing. These norms will therefore be in line with the future plans

of these banks as well. The working group was set up following the need to bring about

transparency on the lines of international norms through better disclosures.


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INCOME RECOGNITIONThe regulation for income recognition states that the Income on NPAs cannot be booked.

Interest income should not be recognized until it is realized. An NPA is one where interest is

overdue for two quarters or more. In respect of NPAs, interest is not to be recognized on accrual

basis, but is to be treated as income only when actually received. RBI has advised the banks to

evolve a realistic system for income recognition based on the prospect of realisability of the

security. On non-performing accounts the banks should not charge or take into account the

interest. Income-recognition norms have been tightened for consortium banking too. Member

banks have to intimate the lead-bank to arrange for their share of recovery. They will no more

have the privilege of stating that the borrower has parked funds with the lead-bank or with a

member-bank and that their share is due for receipt.

As of now, for income recognition norms, the RBI has suggested that theinternational norm of 90

days be implemented in a phased manner by2002. The current norm is 180 days.


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BANKING DIVERSIFICATION:

The Indian banking sector was well diversified, during the economic reforms period. Many of

the banks have stared new services and new products. Some of them have established

subsidiaries in merchant banking, mutual funds, insurance, venture capital, etc which has led to

diversified sources of income of them.

Diversification of banking activities helps banks to mitigate the two problems raised above by

providing them with an opportunity to gainnon-interest income and thereby sustain profitability.

This enables banksto maintain long-term relationships with clients throughout their life cycles

and gives them an incentive to process inside information and monitor their clients. Banks can

stabilize their income by engaging in activities whose returnsare imperfectly correlated, thereby

reducing the costs of funds and thuslending and underwriting costs.

Diversification promotes efficiency by allowing banks to utilize insideinformation arising out of

long-term lending relationships. Thanks to thisadvantage; banks are able to underwrite securities

at lower costs than non- bank underwriters. Firms may also obtain higher prices on their

securities underwritten by banks because of their perceived monitoring advantages. Further,

banks can exploit economies of scope from the production of various financial services.

Diversification may improve bank performance by diluting the impact of direct lending (through

requiring banks to allocate credit to prioritysectors). Direct lending reduces the banks incentives

to conductinformation processing and monitoring functions. As a result, this not onlylowers

banks profitability by limiting financial resources available to more productive usages, but also

results in a deterioration of efficiency andsoundness by discouraging banks from functioning

properly.


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DISCLOSURE NORMSBanks should disclose in balance sheets maturity pattern of advances,deposits, investments and

borrowings. Apart from this, banks are alsorequired to give details of their exposure to foreign

currency assets andliabilities and movement of bad loans. These disclosures were to be madefor

the year ending March 2000 In fact, the banks must be forced to make public the nature of NPAs

being written off. This should be done to ensure that the taxpayers moneygiven to the banks as

capital is not used to write off private loans without adequate efforts and punishment of

defaulters.

New Generation Banks :As per the guidelines for licensing of new banks in the private sectorissued in January 1993, RBI

had granted licenses to 10 banks. Based on areview of experience gained on the functioning of

new private sectorbanks, revised guidelines were issued in January 2001. The

mainprovisions/requirements are listed below : -

Initial minimum paid-up capital shall be Rs. 200 crore; this will beraised to Rs. 300 crorewithin three years of commencement of business.

Promoters contribution shall be a minimum of 40 per cent of the paid-up capital of thebank at any point of time; their contribution of 40 percent shall be locked in for 5 years

from the date of licensing of thebank and excess stake above 40 per cent shall be diluted

after oneyear of banks operations


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Initial capital other thanpromoters contribution could be raisedthrough public issue orprivate placement.

While augmenting capital to Rs. 300 crore within three years,promoters need to bring inat least 40 percent of the fresh capital which will also be locked in for 5 years. The

remaining portion of fresh capital could be raised through public issue or private

placementDuring the reforms period many new generation banks have successfully emerged on the

financial horizon. Banks such as ICICI Bank, HDFC Bank, UTI Bank have given a big challenge

to the public sector banks leading to a greater degree of competition.

Improved Profitability and Efficiency :During the reform period, the productivity and efficiency of many commercial banks has

improved. It has happened due to the reduced Non-performing loans, increased use of

technology, more computerization and some other relevant measures adopted by the government.

Banks can stabilize their income by engaging in activities whose returnsare imperfectly

correlated, thereby reducing the costs of funds and thuslending and underwriting costs.

With these reforms, Indian banks especially the public sector banks have proved that they are no

longer inefficient compared with their foreign counter parts as far as productivity is concerned.


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ASSET CLASSIFICATIONWhile new private banks are careful about their asset quality andconsequently have low non-

performing assets (NPAs), public sector bankshave large NPAs due to wrong lending policies

followed earlier and alsodue to government regulations that require them to lend to sectors

wherepotential of default is high. Allaying the fears that bulk of the Non-Performing Assets

(NPAs) was from priority sector, NPA from priority sectorconstituted was lower at 46 per cent

than that of the corporate sector at 48 per cent.

Assets should be classified into four classes - Standard, Sub-standard,Doubtful, and Loss assets.

The banks should classify theirassets based on weaknesses and dependency on collateral

securities into four categories: Standard Assets:

It carries not more than the normal risk attached tothe business and is not an NPA.

Sub-standard Asset:An asset which remains as NPA for a periodexceeding 24 months, where the current net worth of

the borrower,guarantor or the current market value of the security charged to the bankis not

enough to ensure recovery of the debt due to the bank in full.

Doubtful Assets:An NPA which continued to be so for a periodexceeding two years (18 months, with effect from

March, 2001, asrecommended by Narasimham Committee II, 1998).


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Loss Assets:An asset identified by the bank or internal/ externalauditors or RBI inspection as loss asset, but

the amount has not yet beenwritten off wholly or partly.

SPECIAL TRIBUNALS AND ASSET RECONSTRUCTION FUNDSetting up of special tribunals to speed up the process of recovery of loans and setting up of

Asset Reconstruction Funds (ARFs) to take overfrom banks a portion of their bad and doubtful

advances at a discount wasone of the crucial recommendations of the Narasimham Committee.

To expedite adjudication and recovery of debts due to banks and financial institutions (FIs) at

the instance of the Tiwari Committee (1984),appointed by the Reserve Bank of India (RBI), the

government enacted the Debt Recovery Tribunal Act, 1993 (DRT).

Accordingly, DRTs andAppellate DRTs have been established at different places in the

country. The act was amended in January 2000 to tackle some problems with the old act.


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RECONSTRUCTION OF WEAK BANKSHow to deal with the weak Public Sector Banks is a major problem for the next stage of banking

sector reforms. It is particularly difficult because the poor financial position of many of these

banks is often blamed on the fact that the regulatory regime in earlier years did not place

sufficientemphasis on sound banking, and the weak Banks are, therefore, notresponsible for their

current predicament. This perception often leads toan expectation that all weak Banks must be

helped to restructure afterwhich they would be able to survive in the new environment.Keeping

in view the urgent needto revive the weak banks, the ReserveBank of India set up a Working

Group in February, 1999 under theChairmanship of Shri M.S. Verma to suggest measures for the

revival of weak public sector banks in India


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NEW INITIATIVES TAKEN BY PSBs Technology savvy: SBG daily 11 lakh ATM transactions amounting toRs 140 crore per day

Specialised branches

New products targeted at specific groups Change in structure, systems and procedures involving quick turnaround time to meet world

standards

Marketing orientation Change in ambience Recruitment of specialists Tie-ups, sharing networks, and strategic alliances


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CHAPTER IV

1. Complication Of Data Collected

This research was subjected to following limitation:

Shortage of time:-The time period that we had for doing detailed study was too less. In a short time period

that is very difficult that I could get the knowledge about each and everything related to

my project. Secondary data:-

I used secondary data in my study that is not a reliable source of information for doing

research work. Nature:

The study is suggestive in nature and not much conclusive.6. Unavailability of Primary data:

The information in banks is not to be disclosed to any resource of information. Hence I

was unable to access that information


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CHAPTER V

1. Findings

The legal infrastructure for the recovery of non-performing loans still does not exist.

The functioning of debt recovery tribunals has been hampered considerably by litigation

in various high courts. It is a major drawback of this ruling.

Capital Adequacy and Quality of Assets:

The capital adequacy norm means the banks have to find additional, costly money to refurbish

the capital base.Among the nationalised banks, Canara Bank obtained the first position in capital

adequacy and quality of assets by attaining the full score of 100 earmarked for the parameter

followed by Dena Bank obtaining a score of 97.5 and five other banks a score of 95.

Profitability

Canara Bank has the highest score of 63.31 in profitability followed by Union Bank of India

occupying the second position with a score of 62.06 . The fifteenth position of Syndicate Bank in

profitability with a score of 41.30 is the outcome of its poor performance.

Health Performance (HP)

Canara Bank with its best performance in capital adequacy and quality of assets and profitability,

is able to attain the first position in Health Performance by a score of 163.31 out of maximum of

200 earmarked for Health performance. Canara Bank is followed by Union Bank of India in

Health Performance with a score of 157.2.


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Social Banking

Allahabad Bank has the highest score in social banking with a score of 81.45 followed by Punjab

National Bank with a score of 75.2. Syndicate Bank has a score of 51.15 to keep it at the

fifteenth position in its performance in social banking.

Growth

Though Syndicate Bank has the lowest performance position in capital adequacy and quality of

assets along with eleven other banks and it has only the fifteenth position in profitability, health

performance, and social banking, it has the ninth position in 'growth' with a score of 43.91.

Priority Performance (PP)

In priority performance, which is the outcome of a banks performance in social banking and

growth as per the present study. Syndicate Bank has the fourteenth position with a score of

95.06.

Productivity

Bank of Baroda has the highest productivity performance with a score of 85.09 and Bank of

Maharashtra with a score of 20.64 has the lowest productivity performance.

Efficiency Performance (EP)

The eleventh position of Syndicate Bank in Efficiency Performance with a score of 111.26 is the

outcome of its performance in productivity and customer service.Unlike Health Performance and

Priority Performance where Syndicate Bank has only the fifteenth position and the fourteenth

position respectively, it has a slightly better performance position in Efficiency Performance.


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2. Conclusion.

Since the banking reforms of 1991, there have been significant favourable changes in Indias

highly regulated banking sector. It concludes that the banking reforms have had a moderately

positive impact on reducing the concentration of the banking sector (at the lower end) and

improving performance. Allowing banks to engage in non-traditional activities has contributed to

improved profitability and cost and earnings efficiency of the whole banking sector, including

public-sector banks. By contrast, investment in government securities has lowered the

profitability and cost efficiency of the whole banking sector, including public-sector banks.

Lending to priority sectors and the public-sector has not had a negative effect on profitability and

cost efficiency, contrary to our expectations. Further, foreign banks (and private domestic banks

in some cases) have generally performed better than other banks in terms of profitability and

income efficiency. This suggests that ownership matters and foreign entry has a positive impact

on banking sector restructuring.


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3. Recommendations.

After stating the findings of the study it is appropriate to put forward the following

recommendations to improve the performance effectiveness of the Indian banking sector.

Low performing banks should take every effort to improve their quality of assets, capitaladequacy, profitability, and customer service. Steps should be taken to improve their

Health Performance, Priority Performance and Efficiency Performance.

The banks should make every endeavor to enhance customer satisfaction. They should tryto improve quality service through effective staff training, service monitoring, orientation

and recognition programs

All top and senior executives should be placed in duly respective areas of responsibilityand should be held answerable and accountable for all that happens within their

respective areas.

The operational efficiency of the banks is to be ensured, maintained and improvedthrough modern technology, systems and better staff management on a regular basis.


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Bibliography

http://kalyan-city.blogspot.in/2010/09/economic-reforms-of-banking-sector-in.html

http://pptbusiness.net/ppt/banking-system/

http://www.isrj.net/PublishArticles/515.aspx

http://www.thehindubusinessline.in/2010/03/05/stories/2010030550730800.htm

http://www.banknetindia.com/banking/rbip3a.htm

http://shodhganga.inflibnet.ac.in/
http://kalyan-city.blogspot.in/2010/09/economic-reforms-of-banking-sector-in.htmlhttp://kalyan-city.blogspot.in/2010/09/economic-reforms-of-banking-sector-in.htmlhttp://pptbusiness.net/ppt/banking-system/http://pptbusiness.net/ppt/banking-system/http://www.isrj.net/PublishArticles/515.aspxhttp://www.isrj.net/PublishArticles/515.aspxhttp://www.thehindubusinessline.in/2010/03/05/stories/2010030550730800.htmhttp://www.thehindubusinessline.in/2010/03/05/stories/2010030550730800.htmhttp://www.banknetindia.com/banking/rbip3a.htmhttp://www.banknetindia.com/banking/rbip3a.htmhttp://shodhganga.inflibnet.ac.in/http://shodhganga.inflibnet.ac.in/http://shodhganga.inflibnet.ac.in/http://www.banknetindia.com/banking/rbip3a.htmhttp://www.thehindubusinessline.in/2010/03/05/stories/2010030550730800.htmhttp://www.isrj.net/PublishArticles/515.aspxhttp://pptbusiness.net/ppt/banking-system/http://kalyan-city.blogspot.in/2010/09/economic-reforms-of-banking-sector-in.html

Documents

Project on Indian Banking Sector Reforms